Citizens proposes massive sinkhole rate hike

TALLAHASSEE – Board members of Citizens Property Insurance Corp. voted Wednesday to approve colossal rate increases for sinkhole coverage, including hikes of more than 2,000 percent in some Tampa-Bay areas.

The state Office of Insurance Regulation must agree to the new rates before they take effect. If they do, some critics claim, it could spell the beginning of the end of sinkhole coverage in Florida.

The increases average more than 400 percent statewide, but are dramatically higher in the Bay area based on the insurer’s losses there over the last five years. The state’s largest property insurer, Citizens collected about $32 million in premiums for sinkhole coverage last year, but lost $245 million on those claims.

The proposed rate hike would raise sinkhole coverage costs for homeowners by 2,239 percent on average in Tampa, from $156 to $3,651. Rates in coastal Pasco County would rise 810 percent from $441 to $4,017.

In some cases, the percentage changes are more dramatic than the dollar amounts. Rates in coastal Pinellas County would jump 2,046 percent from $3 to $72.

Sinkhole coverage is an optional line of insurance, although as the Citizens board noted Wednesday, some mortgage lenders require it

At the Legislature’s direction, Citizens is raising its overall rates gradually, by up to 10 percent annually, to cover its losses. Legislation passed this spring and enacted by Gov. Rick Scott, however, exempted sinkhole insurance from the incremental increases, allowing Citizens to charge actuarially sound rates for that coverage this year.

Scott said Wednesday the proposed increases, while “staggering in some cases,” were no surprise.

“Since before I was elected, I have warned that Citizens is in need of serious attention and would soon have to face a day of reckoning,” the governor said. “This proposal is the unfortunate result of politicians playing politics for too long by keeping rates artificially low.”

If losses are outpacing premiums, Citizens should phase in rate increases, said former state Insurance Consumer Advocate Sean Shaw, a Tampa attorney who founded the Policyholders of Florida activist group. He called the proposed immediate increases — at a time of double-digit unemployment and record foreclosures — “terribly anti-consumer.”

Free-market advocates praised the Citizens board’s vote, however.

In a written statement, the conservative Heartland Institute’s Christian Cámara called the decision “tough but necessary.”

“The spike in sinkhole claims is not due to some change in Florida’s geology, but rather to many individuals who have used sinkhole claims as lottery jackpots,” said Cámara. “This is unsustainable and, unfortunately, the time to cover these losses has come.”

Chafing at the state’s mandate that they offer sinkhole coverage, private insurers told lawmakers this spring that frequent and fraudulent sinkhole claims had created an industry crisis.

In response, the bill that passed also limited the window for filing sinkhole claims, narrowed the definition of such claims and required policyholders filing such claims to spend their entire insurance payout on repairs.

If state regulators approve Citizens’ rate hike, private insurers will ask for the same — effectively eliminating sinkhole coverage by making it unaffordable, said Sen. Mike Fasano. “That’s exactly why the private companies, along with Sen. [Garrett] Richter, were pushing this bill down everybody’s throat.”

With some mortgage lenders requiring sinkhole coverage that could soon cost thousands more dollars, “I’ve got people in my district, senior citizens, in tears over this,” said Fasano, R-New Port Richey.

Richter, R-Naples, said it’s important that Citizens charge actuarially sound rates, since taxpayers are on the hook if the government-owned insurer can’t cover its losses.

Hesaid the magnitude of some of Citizens’ proposed rate increases surprised him. “But you can’t sell $75 widgets for $10,” he said. “That’s apparently what Citizens was doing.”

Insurance Commissioner Kevin McCarty said Wednesday it would premature to comment on Citizens’ request before he receives it.

McCarty, who supported Richter’s insurance bill, said he would consider, but did not commit to, a request from Fasano to hold multiple public hearings around the state on the request.

While the rate request would boost sinkhole coverage costs, its effect on non-sinkhole coverage would vary. The cost of non-sinkhole coverage would drop almost 9 percent in Tampa, but rise about 8 percent in the rest of Hillsborough.

Citizens policyholders in Pasco would pay 10 percent to 11 percent more for non-sinkhole coverage; in Pinellas, the cost would be 4 percent to 10 percent less. Cost changes reflect both the requested rate and the Florida Hurricane Catastrophe Fund cash build-up factor that Citizens charges in addition.